Cash is king, and if you own un-contracted or un-hedged cattle, you are in the drivers seat. Buyers have been caught under-bought, and shorts and hedgers have been squeezed as new longs have poured into a relatively small market as commodity futures go.
Last blog I discussed how high live and feeders may go. My charts pointed to 145 in feeder cattle and 133 in live cattle. The feeder futures touched 143 in May and sold down to just under 137 and April live cattle showed a few days of resistance at 131 area and settled sharply higher at 138. Thus, trying to pick a top or bottom is pointless without signs of technical reversals and we saw none.
Dave Toth of RJO Market Insights technical blog, commented on April 27 to maintain a LT bullish policy over 114.425 and 108.675. Prior to this blog, on April 25 Dave identified the 117.575 as the key level needed to be breached to increase bullish exposure. To quote on April 27 the “market’s upside potential should be considered indeterminable and potentially severe.” RJO Market Insights is accessible to RJO clients at no charge.
COT report last Friday showed a record net long in live cattle futures in the non-commercials and a near record in feeder cattle futures (record was met the week prior and likely to be met this week).
Moving forward, we are clearly still in the middle of a very tight cash market as retailers struggle to meet obligations, and front-end supply is extremely current and much of it already sold forward. Just about everything is bullish in meats. What felt like a squeeze last week clearly has evolved into a real under-bought cash trade.
The large discount to cash and recent Winter storm should encourage June live cattle futures to work towards the daily chart gap created by the April expiration at 136.275. The gap is feeders is up at 160.80. Above the 160.80 is a 50% level on a weekly feeder cattle futures continuation chart around 165.50 area. The 165 level has been a second price target traders have been discussing once the 152 level did not hold just recently.
The premium I paid for an August 134 put for protection in feeders 3 ½ weeks ago in feeders now can be used to buy a 153 put. Our trigger to initiate puts started at 135 then 152 and possibly next at 165 basis August FC futures. Hard to believe.
Live Cattle Weekly Chart
Feeder Cattle Weekly Chart
Aug ’17 Live Cattle Daily Chart